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The mail and wire fraud statutes, 18 U.S.C. 1341 and 1343, have long been preferred charging vehicles of the government in cases of alleged financial crime. As one former federal prosecutor (now a federal district judge) has described it: “To federal prosecutors of white collar crime, the mail fraud statute is our Stradivarius, our Colt 45, our Louisville Slugger, our Cuisinart � our true love. We may flirt with RICO [Racketeer Influenced and Corrupt Organizations Act], show off with 10b-5, and call the conspiracy law ‘darling’ but we always come home to the virtues of 18 U.S.C. � 1341, with its simplicity, adaptability, and comfortable familiarity.” Jed S. Rakoff, “The Federal Mail Fraud Statute” (pt. 1), 18 Duq. L. Rev. 771, 771 (1980). However, a recent decision by the 10th U.S. Circuit Court of Appeals, U.S. v. Lake, 472 F.3d 1247 (10th Cir. 2007), in which the court reversed the wire fraud convictions of former Westar Energy Inc. executives David C. Wittig and Douglas T. Lake, may limit the ability of prosecutors to rely on these statutes in the future, particularly in cases involving allegations of fraud in connection with securities filings. Lake revived the “required mailing” doctrine, which creates additional evidentiary burdens for the government when the underlying wire or mailing was compelled by law to have been sent. Lake may also prove significant by adding to a nascent trend of case law limiting the reach of the mail and wire fraud statutes. See, e.g., U.S. v. Brown, 459 F.3d 509 (5th Cir. 2006) (reversing convictions improperly premised on a deprivation of “honest services” theory). Wittig and Lake were executives of Westar, the largest public utility in Kansas. Wittig joined Westar in 1995 and by 1999 had become president, chief executive officer and chairman of the board of directors; Lake was an executive vice president. The government charged the pair with seven counts of wire fraud, alleging that, throughout the time of their employment, they engaged in a scheme to defraud Westar and its shareholders. The government alleged that the defendants engaged in a number of fraudulent activities, such as attempting to split and merge the company for their personal benefit by exercising “change-in-control” provisions in their employment agreements that would have yielded each of them between $18 million and $65 million. The government also asserted that Wittig and Lake looted the company by misusing the company’s loan and relocation programs, trying to remove directors who challenged them and misleading the company into financially disadvantageous share exchanges with other entities for their own gain. Most notably, the government contended that Wittig and Lake improperly used the company’s airplanes for their personal objectives. As the court noted, the elements of a wire fraud offense are a scheme to defraud; an interstate wire communication; and a purpose to use the wire communication to execute the scheme. The court found that the government satisfied the first two elements but that the evidence with respect to the third was deficient, and on this basis reversed. In the typical mail or wire fraud case the mailing or wire transmission “need only have been incidental to some essential part of the scheme” to satisfy the third element. U.S. v. Vardell, 760 F.2d 189 (8th Cir. 1985). Here, however, the 10th Circuit analyzed the issue differently because the alleged wire transmissions, namely the annual reports and proxy statements at issue, were “required by law” to be filed. Without some additional showing the government could not say that the transmissions were made to further the alleged fraud, because the very same transmissions would have been made in the absence of that fraud. The court’s holding was premised on its reading of the U.S. Supreme Court’s decision in Parr v. U.S., 363 U.S. 370 (1960). In Parr, a school board caused mailings to be made to collect taxes for the school district, an activity it was required by law to undertake. Although some members of the school board then misappropriated the funds collected from these mailings, the Supreme Court noted that the mailings were made “under the imperative command of duty imposed by state law,” and thereby refused to find a violation of the mail fraud statute. 472 F.3d at 1256 (citing Parr, 363 U.S. at 391-92). Just as in Parr, the 10th Circuit in Lake reasoned, Westar was required by law to file the 10-Ks and proxy statements identified in the indictment. Thus, the reports were filed because “they had to be, not because of any unlawful scheme.” 472 F.3d at 1255. The Lake court did not find that this fact alone required reversal. Instead, it held that when the wire alleged to have been part of the scheme was required by law to have been sent, the government must prove that the transmission itself was “false or fraudulent.” Id. The court then examined the annual reports and proxy statements to determine whether the government adduced sufficient evidence that these documents were false or fraudulent. The court found that the falsity of the documents hinged on the government’s claim that the defendants failed to reveal their personal use of Westar’s airplanes. The government argued simply that the personal use by the defendants was not disclosed, and that the value of the undisclosed flights to the defendants was more than $1 million to each. The government’s economic calculation was based on the cost of equivalent flights on chartered aircraft. The court wholly rejected the government’s approach. As an initial matter, the court ruled, whether the defendants falsely omitted the personal aircraft use information turned on whether they were required, by law, to disclose this information. Executive compensation must be disclosed in annual reports and proxy statements pursuant to Regulation S-K, Item 402. At the time of the alleged offense, under Regulation S-K, Item 402, a company had to disclose its executives’ use of company airplanes only if the aggregate value of that travel for the year exceeded the lesser of $50,000 or 10% of the executive’s annual salary and bonuses. Under the prevailing interpretation of the regulation, such benefits were to be valued based on the aggregate “incremental” cost to the company. Under this approach, the court posited that the defendants’ personal use of aircraft may have amounted to only modest additional costs to the company (e.g. fuel and maintenance). More importantly, the court found that the government offered no evidence on what the “incremental” cost to the company had been. As such, it failed to prove that the defendants had been required to make any disclosure of their aircraft use, and thus failed to prove that the filed documents were “false or fraudulent” on this basis. Government shot down In the alternative, the government argued that even if the reports contained all the information required by law, they were still “fraudulent.” Reasonable investors would have expected the filings to reveal information about the executives’ personal use of company aircraft, even if such disclosure were not required by law, because the company revealed other, quantitatively less significant details of its executives’ compensation. The government noted that the filings revealed such seemingly immaterial details as premiums of $652 paid for term life insurance and car allowance of $11,997. But the court noted that these other aspects of the defendants’ compensation were legally required to be disclosed. Id. Because the government failed to adduce sufficient evidence that the transmissions at issue were false or fraudulent and therefore made for the purpose of executing a scheme to defraud, the court reversed the wire fraud convictions; pursuant to the double jeopardy clause, the court held that the government could not retry the defendants on these charges. By circumscribing the government’s use of the wire fraud statute, the 10th Circuit joined what may be a growing trend. Recently, the 5th Circuit overturned the wire fraud convictions of four Merrill Lynch employees in the so-called Enron Nigerian Barge case, U.S. v. Brown, 459 F.3d 509 (5th Cir. 2006). In a now much discussed opinion � see, e.g., Edward Malone, “Private Citizens and Public Corruption: The Problems with ‘Honest Services’ Fraud,” 21 No. 5 White Collar Crime Rep. 3 (2007) � the 5th Circuit dramatically reduced the scope of the “honest services” theory of prosecution, a ruling that has reverberated throughout the country. Brown, 459 F.3d at 518-523; see e.g., Government’s Motion to Strike “Honest Services” Fraud Allegations From Indictment, U.S. v. Gardner, No. 04-CR-2605W (S.D. Calif. Feb. 6, 2007). In light of Lake and Brown, the government may find it more difficult to ground its securities-related prosecutions on mail and wire fraud theories. In these cases, prosecutors may find their beloved “Stradivarius” more than a little out of tune.

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